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Income Tax Appellate Tribunal, DELHI BENCH : A : NEW DELHI
Before: SHRI R.S. SYAL, AM & SHRI K.N. CHARY, JM
(Appellant) (Respondent) Appellant by : Shri C.S. Aggarwal, Sr. Advocate & Shri R.P. Mall, Advocate Respondent by: Shri S.K. Jain, DR Date of Hearing : 14.12.2016 Date of Pronouncement : 15.12.2016 ORDER
PER R.S. SYAL, AM:
This appeal by the assessee is directed against the order passed by the CIT(A) on 30.11.2007 in relation to the Assessment Year 2002-03.
No argument was advanced in respect of Ground No.1, which is hereby dismissed.
Ground no. 2 is against the sustenance of disallowance of Rs.38,41,434/-, being loss on foreign exchange incurred on trading liabilities.
Briefly stated, the facts of the case are that the assessee is engaged in import of Acterna Group’s high technology T & M equipments for sale to various government and private sector companies in the telecom sector. The assessee filed return declaring loss of Rs.95,25,230/-. Apart from others, the assessee claimed deduction in respect of foreign exchange loss amounting to Rs.38,41,434/-. The AO made disallowance of the same. The ld. CIT(A) confirmed the disallowance by noticing that the assessee did not furnish any details about the foreign exchange loss, against which the assessee has come up in appeal before us.
We have heard the rival submissions and perused the relevant material on record. There can be no dispute on the proposition that foreign exchange loss is deductible in respect of trading transactions involving purchase and sale of goods. However, foreign exchange loss cannot be allowed as deduction where a loan is taken for purchasing a capital asset and forex loss arises on account of such transaction. We find that the assessee has, albeit, filed copy of account of Foreign exchange loss, but, the same does not indicate the nature of transactions on which such foreign exchange loss was incurred. There is no discussion in the assessment order about the nature of loss. Since such details were also not available before the ld. CIT(A) enabling him to categorize the foreign exchange loss in respect of trading items and loan taken for acquiring capital assets, and the same are absent before us as well, we set aside the impugned order and remit the matter to the file of AO for ascertaining the nature of foreign exchange loss. To the extent such foreign exchange loss/gain relates to trading transactions, the same should be taken as a revenue item and hence deductible/chargeable to tax. The other part relating to acquisition of capital asset should be taken as a capital expenditure, not eligible for deduction. Needless to say, the assessee will be allowed an opportunity of hearing in such fresh proceedings.
The next ground is against sustenance of addition of Rs.2,33,978/-, being the payments made towards Employees and Employer’s Provident Fund contribution. The AO made this disallowance without much discussion in the assessment order. The ld. CIT(A) sustained the same by noticing that there was a delay ranging between one to four/six days in depositing the amounts. The assessee is aggrieved against this sustenance of disallowance.
We have heard the rival submissions and perused the relevant material on record. A chart has been drawn at page 6 of the impugned order, which shows that employees’ and employer’s share of contribution to PF and family pension fund for the month of May, 2001 was actually deposited on 21.6.2001 against the due date of payment of 20.6.2001. Similarly, the employees’ and employer’s contribution to PF and employees’ contribution to family pension fund for the month of March, 2002 was deposited on 22/26.4.2002 as against the due date of 20.04.2002. We find that the question of deletion of disallowance under such circumstances is no more res integra. The Hon’ble Supreme Court in the case of CIT v. Alom Extrusions Limited [(2009) 319 ITR 306 (SC)] has held that the amendment to first proviso and omission of the second proviso to section 43B by the Finance Act, 2003 is retrospective. The Hon’ble Delhi High Court in the case of CIT v. Aimil Limited [(2010) 321 ITR 508 (Delhi)] has allowed deduction in respect of employees’ share when the amount was paid before the due date. When we consider these two judgments, it becomes patent that both the employer’s and employees’ contribution are allowable as deduction if the amount of provident fund etc., though belatedly, but is paid before the due date of filing of return u/s 139(1) of the Act. Adverting to the facts of the instant case, it is seen as an admitted position that the assessee deposited its and employees’ share in EPF etc. before the due date u/s 139(1) of the Act. Respectfully following the aforenoted precedents, we order for the deletion of the addition. This ground is, therefore, allowed.
The next ground is against the confirmation of disallowance of Rs.47,136/-. The facts apropos this ground are that the assessee claimed deduction of Rs.47,136/- on account of TDS for which no certificates were received from customers. It was claimed that the amount was recoverable, but, could not be recovered from the customers who had deducted the amount. The AO made the disallowance which came to be sustained in the first appeal.
We have heard both the sides. On a query about the details and evidence for such deduction of tax at source by customers, the ld. AR failed to furnish the same and corroborate the version of tax deducted at source by the customers without furnishing any TDS certificates. In the absence of the foundation of the deduction of tax at source by customers, we are unable to accept the assessee’s contention for allowing deduction. The impugned order is upheld. This ground is not allowed.
The next ground is against the sustenance of disallowance of Rs.1,50,000/-, being tax paid on salaries of employees under protest. A survey u/s 133A was carried out in the assessee’s premises on 14.3.2000.
During the course of survey, it transpired that the assessee was paying certain amounts in respect of books and periodicals, entertainment and vehicle running and maintenance, etc., to its employees without deduction of tax at source was made. The AO raised a demand on account of such short deduction of tax at source amounting to Rs.1,50,000/- which was paid by the assessee under protest. The AO did not allow any deduction for this sum, which action was confirmed in the first appeal.
Having heard the rival submissions and perused the relevant material on record, it is noticed that the assessee was visited with proceedings u/s 201(1) for short deduction of tax at source on certain payments made to employees. It is in this background that the assessee was made liable to pay a sum of Rs.1,50,000/- on account of TDS which the assessee deposited under protest. It is obvious that the amount of TDS paid by the assessee is in respect of services rendered by the employees on which tax was not deducted, is a sort of perquisite, which if paid so would have been deductible as revenue expenditure. As such, the amount of Rs.1,50,000/- has to be allowed as deduction if it was paid and not refunded to the assessee. On a pertinent query, both the sides did not have an idea about the order passed by the Tribunal, if any, against the order u/s 201(1) creating demand of Rs.1,50,000/-. We, therefore, direct the AO to allow deduction for Rs.1,50,000/- in the year. If such demand has been erased by the Tribunal in subsequent proceedings, then, the amount so refunded should be charged to tax in the relevant year.
The next ground is against the sustenance of addition of Rs.37,431/-, being excess deposit of TDS amount on salaries to employees. Next ground assailing sustenance of disallowance of Rs.4,047/-, being excess deposit of Provident Fund contribution, is connected with the former ground. Both are, therefore, taken up for consideration in a combined manner.
The assessee claimed that a sum of Rs.37,431/- was paid as TDS by it in excess of the legitimate liability in respect of salaries paid to its employees. Similarly, a sum of Rs.4,047/- was claimed as deduction, being excess contribution to Provident Fund account. The AO did not allow deduction of these two amounts which action was upheld in the first appeal.
Having heard the rival submissions and perused the relevant material on record, we find that the assessee has set up a case that a sum of Rs.37,431/- was paid in excess of the liability and no TDS certificates were issued to any of the deductee employees. Suppose salary of Rs.100 is due to an employee on which tax liability is Rs.15, the employer will deduct and deposit Rs.15 with the exchequer and pay Rs.85 to the employer. If, by mistake, the employer deducts Rs.20 instead of Rs.15, ordinarily, the TDS certificate should be given for Rs.20/- and the remaining sum of Rs.80/- should be paid to the employee. What the assessee is contending before us is that it paid Rs.85/- to its employees, but, deducted and paid TDS of Rs.20/- to the exchequer. This position, if correct, calls for allowing deduction in respect of Rs.5 (Rs.20-Rs.15), being an amount incurred during the course of business. However, if the employee is paid Rs.80/- after deduction of Rs.20/- as TDS, as against the correct liability of Rs.15, then, of course, there can be no deduction for the remaining sum of Rs.5/-. As the facts are not borne out from the record or impugned order, we, therefore, set aside the impugned order and remit the matter to the file of the AO for deciding it in accordance with our above observations after allowing a reasonable opportunity of being heard to the assessee.
As regards the excess amount of Rs.4,047/-, being payment of Provident Fund in excess of the actual liability, the same has to be allowed as deduction being an expenditure incurred in carrying on the business.
In the result, the appeal filed by the assessee is partly allowed. The decision was pronounced in the open court on 15th December, 2016.